Financial Planning: Millennials vs. Older Generations

Generation Y or popularly known as Millennials, are the best example for the right place and right time. Having born during 1977-1995, they are in the generation where the start-up economy is budding, and the markets and financial assets are accepted with open hands.

At 440 million, they form 34% of the Indian population who prefer renting a house than buying. They are more tech-savvy and gadget-savvy. Investing for short-term goals, getting married late, excessive spending, and going on vacations quite often are some of the ways they like to live. This way of living is very different from what the older generations, Gen X, and baby boomers would like to do. House and gold were the only two investment options good enough for them. They spend less and save more. Long term goals are what they concentrate on.

Having said that, how different are Millennials from the older generations when it comes to financial planning? Read on to know more.

Investing early for
retirement

Most of the Millennials think investing for a goal that is 25-30 years away can wait. They opine that one can start thinking about retirement after 30. Until then, they will concentrate on settling down in life. They consider investing in financial assets like shares, and mutual for retirement will help them earn a good corpus as they give a higher return. They are willing to take a risk to make a higher return.

Older generations think about saving up for retirement or any other long term goals as soon as they start earning. They invest in traditional financial products like NPS, FDs, PPF, etc. for their retirement. But nothing beats investing in real estate and gold when it comes to investment even when the returns from these are less. Shares and mutual funds investing is more like gambling to them.

What can millennials learn from Gen X?

Millennials have to think about their retirement right from the time they start earning. Investing a little every month can reduce the burden of investing in higher amounts later.

Spending habits

Millennials fondness towards spending on gadgets, entertainments, food, vacation, apparel, accessories, etc. is something that the older generations don’t understand. Millennials save less and spend more, and this is leading the economy towards being consumption-driven than savings-driven. The savings of millennials for the future is sometimes less than 10% of their paycheck. And most of the times they end up living paycheck to paycheck. One reason that increased the spending of millennials is their ease of borrowing and not just loans but also through credit cards and EMI facility available on almost everything. This ease of financing might only lead them into a debt trap. These spending habits can be a bane for this generation.

Gen X is all about saving every rupee. They sacrifice most of the wants in life to save up for the long term goals. They cannot live paycheck to paycheck. Millennials, on the other hand, cannot sacrifice their wants. They believe in the concept of YOLO (You Only Live Once). Hence it’s difficult for Gen X to understand why millennials can’t save.

What can millennials learn from Gen X?

Since millennials have fewer responsibilities, saving might not occur to them at the moment. More financial obligations like marriage and children can be a trigger for them to save more. Until their expenses are too extravagant that it might hamper other financial goals, they are good to go.

Insurance

Millennials are recognizing insurance as a necessity and ensuring they have enough life cover. Health insurance is still yet to come to limelight as most of the generation still relies on employer-given health insurance. Automobile insurance, being mandatory is something everyone tends to take. Millennials are much better in understanding the need for protection against risk than Gen X.

Gen X never treated insurance a part of their essential needs. It was treated more like an investment to fund primary life goals, and they also had inadequate covers. That can even be because if lack of information during their time.

Millennials have to concentrate on taking term insurance with adequate cover. Not just life insurance, health insurance with critical insurance riders have to be taken to reduce healthcare costs later. Millennials love to travel and taking travel insurance is something they can think of too when planning for a trip. Insurance comes second in the list of financial priorities after the emergency fund. It’s vital that this generation takes it seriously.

Goals

Millennials are different from Gen X when it comes to financial goals. They plan for more short term goals. Like a vacation, buying the latest gadgets, car, etc. The plan for long term goals is hardly in the picture. They usually prefer postponing goals like retirement, house, children’s education, and children’s marriage for later. Millennials think they can wait until 45 before they start investing for retirement and don’t have to think about investing for children’s education until they are 30 plus. Having a house is totally out of the picture. Living in a rented apartment is a lot simpler, and they aren’t tied down with the burden of maintaining for life. They are more motivated towards investing or saving up for vacations. Travel and vacation have become a necessity than a want or desire.

Gen X has always invested in long term goals. They can forgo short term goals like a vacation to save up for more significant ones in life. They cannot understand why millennials want to travel. Gold and real estate were the only investments good enough for them to have a secure future. For them having a home ensures security in life. They never plan for the short term. The ultimate success for them in life is to have a house, getting their children educated, getting them married without a hassle, and living a debt-free life.

What can millennials learn from Gen X?

Millennials have to concentrate on multiple goals simultaneously. Focusing on short term goals and investing towards them is good, but at the same time, one cannot neglect the long term goals. Investing a little every month in mutual funds through SIP for a long term can create a considerably large corpus. Hence millennials should consider investing for long term goals too.

Conclusion

Millennials and Gen X are very different when it comes to financial planning. While Gen X is more about saving, millennials are more about spending. Millennials are willing to take a risk to earn higher returns, while Gen X is not. Millennials live a very different life from Gen X, but that doesn’t mean the life goals differ. They have to concentrate on investing for long term goals in life. I agree that there is just one life but living it the way we want till the last breath matters.

Millennials it’s time to think about the long term too! This generation is called tech-savvy and gadget-savvy, and it’s time to be investment savvy also!

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